With frac sand use — and costs — on the rise in the Permian, a number of exploration and production companies (E&Ps) are becoming more involved in managing sand acquisition and logistics. It’s not an easy job, because even though a greater share of the frac sand used in Permian wells is expected to come from local, West Texas sand mines in the coming year, those “last mile” logistics — the delivery of sand by truck from the mine, plus unloading and storage of sand at the well site — are especially complex. Today, conclude our series on frac sand with a look at the challenges E&Ps face when they assume supply chain responsibility for sand.

E&Ps in the red-hot Permian and other U.S. shale and tight-oil and gas plays have had remarkable success the past few years in ratcheting down the cost of drilling and completing new wells and to increase hydrocarbon production per well. And, as they have gained a more nuanced understanding of their hydrocarbon resources, producers and their pressure pumpers have been implementing increasingly sophisticated and well-specific completion strategies to wring ever-increasing volumes of crude oil, natural gas and natural gas liquids from their wells. These gains have been particularly significant in the Permian, where E&Ps have largely figured out how to optimize production from the region’s multiple, stacked pay zones. Two key elements of their success, which we described in Faster Horses, are drilling longer horizontal wells or laterals (now often 7,500 or 10,000 feet, and sometimes longer) and intensifying completions with the use of more pressure, more frac sand per linear foot of lateral and more frac stages.

In Part 1, Part 2 and Part 3 of our “Wipe Out!” blog series, we discussed the trend toward high-intensity completions, which caused frac sand demand — and prices — to soar, and prompted the rapid development of new sand mines in West Texas to help meet rising demand and to reduce sand transportation costs (by eliminating the cost of long-distance rail shipments and rail-to-truck transloading and storage). More recently, in the first part of this series, “All My Frac Sand Comes From Texas,” we said that Permian producers as a group now are consuming more than 40,000 tons of frac sand per day; the blog also noted that close to 20 new potential sand mines are now in various stages of development in West Texas — three are already operating, with another half dozen scheduled to come online by the spring of 2018. All of these mines are within trucking distance of their Permian customers. In the second part of our series, we discussed the fact that the West Texas sand mines are expected to be able to provide large volumes of the fine 100 and possibly some 40/70 mesh sand that are most commonly used in well completions. Then, in the third part, we discussed how frac sand procurement and logistics have traditionally been managed (mostly by pressure pumpers/oilfield service companies), and why a number of E&Ps have been exploring the possibility of taking a more hands-on approach to supply chain management with the hope and expectation of reducing their frac sand costs.

In addition to the do-it-yourself approach to managing their frac sand needs and logistics, E&P’s also can turn to major sand companies, which are developing their own capabilities (including shipping containers) to deliver their product all the way to well sites. Also, some third-party logistics providers are offering sand delivery services that allow the E&Ps to take care of the sand procurement and take on the headache of sand logistics. And some pressure pumpers are responding to the competition by making the frac sand part of their bills more transparent with costs broken down by supply-chain element and margin. (Given that many smaller E&Ps may not want to assume supply-chain responsibility for sand, it’s safe to say that pressure pumpers are likely to retain a healthy share of sand procurement and logistics, at least for the near term.)

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